How Referral Marketing Works
Referral marketing is one of the most effective ways to generate new business leads because customers tend to trust the word of other consumers over the business itself. Improving your referral strategy through referral programs can generate valuable leads and strengthen your return on investment (ROI). Over half of surveyed marketers say referral programs have a lower cost-per-lead than other marketing methods.
While businesses may gain word-of-mouth referrals by offering exceptional service, a referral program that focuses on gaining recommendations can hone your strategy. One reason referral marketing is so effective is that it expands your sphere of influence and taps into new markets.
Referral programs can be customized based on your preference. Some of the most common referral program structures include premium membership or point-based systems. Referral programs can even be built out beyond references to incentivize customers and show appreciation. These programs typically work with the following steps:
- Identify essential persons within your sphere of influence, like business contacts and existing clients.
- Invest in these relationships while cultivating new relationships.
- Promote your referral program or ask for a referral.
- Acknowledge and show thanks for a referral and incentivize future recommendations.
Tips for Generating More Referrals
Seventy-eight percent of business-to-business marketers say referrals generate good or excellent quality leads. If you’re looking to gain more word-of-mouth marketing, consider these tips for generating referrals:
1. Incentivize Referrals
Your most loyal or frequent customers are often the clients most likely to refer you to a friend or family member. Creating a referral program that rewards customers for telling others about you can acknowledge frequent shoppers and allow them to benefit from making a referral.
Some customers may refer your brand based on their own positive experiences. Others may need a small incentive to refer someone. Rewards aren’t essential but can greatly bolster potential referrals. Simple incentives, such as 10% off their next order or a free product or service, can appeal to many customers who may not have otherwise submitted a referral.
2. Ask for Referrals at the Right Time
Asking for referrals is not a one-size-fits-all process and should be customized for each client. Generally, a company should hold off on asking for referrals until they have finished creating and providing deliverables. Only ask for a referral after a customer receives deliverables and is satisfied with their service or product.
3. Engage Existing Customers
Engaging existing customers can show you appreciate them and maintain a healthy working relationship, increasing brand association and the likelihood of a customer making a referral. Engage with existing to build lasting, meaningful connections. Stay in contact following a sale, provide a meaningful community and offer continuous value. Keeping in regular contact will make any referral requests you send seem more genuine and less pushy.
4. Act on Positive Feedback
For a company to receive referrals, it must be referral-worthy, meaning they meet and often exceed a customer’s expectations. Checking and acting on positive feedback can ensure you put your best foot forward with new customers. If you see a common theme in positive feedback, like quality customer service, prioritize this action item in future experiences with new customers.
5. Implement Negative Feedback
While acting on positive feedback is often easy and enjoyable, some companies may be less likely to focus on negative feedback, but this is a real opportunity for growth and development. While not every piece of negative feedback is constructive, you should look for common themes across reviews or feedback forms and look for areas you can create a positive change and improve future customer experiences.
6. Train Staff to Promote Your Referral Program
You will need to promote your referral program to be as successful as possible. If you have a large e-commerce business, you can place a referral button on your website that prompts customers to refer a friend. With this referral button, you can include any incentives attached with a successful referral.
Passive promotion is useful, but active promotion is still important, especially if your business operates largely from a physical location. In these instances, you can train your staff to educate customers on your referral program and place signage to grab a customer’s attention.
7. Educate Current Customers
While existing customers may be familiar with several of your products or services, it can be helpful to educate them on the full range of what you offer. These can be intangible benefits, like flexibility and reliable communication. Letting customers know what you offer sets yourself apart from competitors, and it opens up the possibility of internal and external referrals.
8. Distribute Content Across Multiple Channels
You may have a channel or medium you have a lot of engagement on, but you should differentiate your content across multiple channels to be the most effective. Educate customers about your referral program through emails, make social media posts promoting the program and create content on your website explaining the program in detail.
9. Offer Alternate Referral Methods
If you have loyal clients that don’t take advantage of your referral program, consider alternate referral methods. These can be indirect ways for customers to discuss what they enjoy about buying from you — they may not tell a friend about your brand, but they’ll post about it positively for someone else to read. You can offer clients incentives for alternatives like testimonials, online reviews and case studies.
10. Make Referrals Simple
At its core, the referral process should be simple and effective. Clients are much more likely to complete a referral if the process is straightforward and simple. If clients have to go through several confusing forms or processes, they are much more likely to abandon the referral process. You might have your site generate a link for customers after they make a purchase, which they can easily forward to friends or family.
11. Provide a Template
Creating a referral template that a customer can quickly fill out may increase the number of referrals you gain. Keep in mind that your clients are busy and they often don’t have a lot of time to write a referral from scratch. Instead, a template can provide the foundation they need to quickly complete a referral. You can include your business’s information and unique selling points, while your customers can fill in what they like about working with you.
12. Automate Your Referral Program
One of the main reasons referral programs aren’t effective is they are too time-consuming or complicated. Automating your referral program can make referrals easier and simpler to complete, greatly increasing the likelihood of numerous successful referrals. Automated referral programs maintain client lists of those who have signed up for the program and can send automatic reminders to collect information.
13. Align With Your Customer’s Values
It is essential to understand what your customers value about your business before asking for a referral. When you understand your client’s values, you can align an acknowledgment or incentive with those values, leading to a more personalized and relevant experience. If your customers appreciate the savings your brand offers, incentivize them to refer you with additional discounts, for instance.
14. Give a Referral
Increasing referrals may involve offering some yourself. If you are a business-to-business brand, it can be mutually beneficial to offer a referral on behalf of your client, making them much more likely to return the favor. You might even discuss a referral partnership, where you and another company promote each other to clients.
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